Given a gross monthly income of $5150 and monthly debt payments totaling $1035, the bank will approve a loan payment up to 24% of the adjusted income. What is the maximum monthly loan payment?

Given a gross monthly income of $5150 and monthly debt payments totaling $1035, the bank will approve a loan payment up to 24% of the adjusted income. What is the maximum monthly loan payment?

• A. $988.00
• B. $987.00
• C. $1,236.00
• D. $411.00

Answer: (A)

Use adjusted income to see how much of your earnings can go toward a new loan. Adjusted income is the gross monthly income minus current monthly debt payments. Here, 5150 minus 1035 equals 4115. The bank allows a loan payment up to 24% of that adjusted income, so multiply 4115 by 0.24 to get 987.6. Since payments are in whole dollars, round to the nearest dollar to get 988. So the maximum monthly loan payment is $988. (Choosing 987 would be slightly below the allowed amount, and 1236 or 411 don’t reflect 24% of the adjusted income.)

Use adjusted income to see how much of your earnings can go toward a new loan. Adjusted income is the gross monthly income minus current monthly debt payments. Here, 5150 minus 1035 equals 4115. The bank allows a loan payment up to 24% of that adjusted income, so multiply 4115 by 0.24 to get 987.6. Since payments are in whole dollars, round to the nearest dollar to get 988. So the maximum monthly loan payment is $988. (Choosing 987 would be slightly below the allowed amount, and 1236 or 411 don’t reflect 24% of the adjusted income.)